Financing

Steak ‘n Shake has permanently closed 51 locations

The burger chain, which faces challenges refinancing its debt, has also temporarily closed 62 locations.
Steak 'n Shake
Photograph courtesy of Steak 'n Shake

Steak ‘n Shake has permanently closed 51 of its company-owned restaurants as the chain has worked to refinance a debt bill that comes due next year.

The closures were detailed in the Indianapolis-based burger chain’s parent company’s latest earnings report. They suggest that half of the temporary closures announced last year have been made permanent as the company has struggled to regain profitability amid steep sales and traffic declines last year.

The company now operates 306 restaurants, down from 368 at the end of 2019. Steak ‘n Shake closed 51 restaurants, sold one location to a franchisee and another 10 to operating partners under the chain’s current refranchising strategy.

Traditional franchisees operate another 208 restaurants. Six franchisee units were closed in the first three months of this year, according to the company.

Steak ‘n Shake, which offers both full-service family dining and a popular drive-thru, has permanently shed 73 company and franchised locations since the end of 2018. Another 62 locations are temporarily closed.

Steak ‘n Shake is owned by San Antonio-based investment company Biglari Holdings, a conglomerate of disparate companies in restaurants, insurance, oil and the men’s publication Maxim magazine. It also controls a substantial investment in highwayside dining chain Cracker Barrel.

Biglari Holdings reported a $138 million net loss in the first quarter ended March 31, losses largely on declines in the value of its stock holdings.

But the restaurant operations have been losing money, too, though those losses actually narrowed in the first quarter. Steak ‘n Shake lost $7.9 million in the first quarter. In the same period a year ago, the chain lost $13.3 million.

Much of the loss this quarter, moreover, was due to a $10.3 million impairment charge due to the closed locations.

Revenue for the restaurants declined 34%, to $114.1 million.

Steak ‘n Shake did not provide details on same-store sales and traffic, but both numbers have been declining for most of the past four years. The chain’s same-store sales declined by at least 5% in each of the past six quarters heading into 2020.

The company simply said in its earnings report that the pandemic “has adversely affected our operations and financial results.” The company’s restaurants have temporarily shut their dining rooms but have been open for drive-thru service and takeout.

The company has been working to pare its losses as it faces a due date for its loan. Steak ‘n Shake has $159 million on its loan still outstanding after the company repurchased $21.7 million worth of the debt in what bond-rating agencies consider a “distressed” purchase.

That debt is a concern for Steak ‘n Shake because Biglari Holdings doesn’t guarantee the loan.

Bond-rating agencies Moody’s Investors Service and S&P Global both recently downgraded Steak ‘n Shake’s credit rating in the wake of the stock repurchase and said it would face “extreme” challenges in refinancing the loan.   

Steak ‘n Shake has been working on several new initiatives to improve its sales and finances. The company plans to refranchise all of its locations to operating partners who would pay $10,000 for the ownership of the location, with the company splitting profits with the operators. The company has transferred 39 of those locations to operators.

It began temporarily closing locations early last year with plans to reopen them under those operating partners. Later, the company said it would reopen many of the closed restaurants as counter-service locations.

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